In an effort to reduce the compliance burden on the investment fund industry, the European Securities and Markets Authority (ESMA) is proposing a model for streamlining funds’ regulatory reporting, and is seeking more efficient trade reporting.
In a pair of reports published on Monday, ESMA set out its approach to harmonizing fund reporting, which is currently fragmented at the national level — and it detailed the results of its consultation on simplifying trade reporting, which identifies the primary challenges in this area, but stops short of making recommendations for reform.
The reports come as part of a broader effort to ease compliance costs in the fund industry by simplifying regulatory demands on industry firms and reducing needless duplication.
“The objective is to reduce operational burden for market participants by introducing the principle of ‘reporting once’, while also improving data quality and supervisory effectiveness,” said Verena Ross, chair of ESMA, in a release. “This will be achieved through harmonization and enhanced data sharing between authorities across the EU.”
In its report on regulatory reporting, ESMA sets out its vision for shifting from fragmented national reporting toward a common reporting framework, which would also be designed to remain proportionate to funds of different sizes and investment strategies.
To that end, it sets out a proposed model for centralizing data validation, storage, and analytics, while keeping data collection at the national level. Centralizing certain functions and boosting data sharing is intended to generate efficiency gains for regulators, while easing the compliance burden on the industry by curbing duplicative data demands.
“The aim is to reduce duplication, improve data consistency and enhance the usability of data for [regulators],” the report said.
To facilitate adoption of the new model, ESMA will also develop regulatory and technical standards, which are slated to be released next year — followed by the gradual implementation of the other recommendations for integrating reporting.
“The data we collect from market participants is and will continue to be central to how ESMA and the [national regulators] supervise markets,” Ross said. “It underpins our risk assessments and allows us to identify vulnerabilities early, supporting our work to safeguard integrity and financial stability across EU markets.”
In a separate report, ESMA also detailed the results of a consultation on simplifying trade reporting. Among other things, it sought to identify the primary challenges to efficient reporting and examined potential long-term solutions.
“Most respondents indicated that overlapping and inconsistent reporting requirements, frequent and unsynchronized regulatory changes, fragmented reporting channels and dual reporting are major drivers of cost and complexity,” it noted.
That report doesn’t include policy recommendations just yet — those are expected to be published in the coming months.
In the meantime, ESMA will be holding a public hearing on May 28 to collect further input. It will also conduct a cost-benefit analysis, to be carried out by an independent consultancy.
A final report, which will include recommendations and the outcome of the cost-benefit analysis, is slated to be published in July.